Financial
Institutions in
Agriculture
The efficient supply of capital is critical to the
competitiveness of U.S.
food system. Recent structural changes
in agriculture have caused many lenders to re-examine the methods that
they use
to supply credit to agriculture. In
order to most efficiently serve agricultural borrowers it is critical
that the
economics of serving the farm borrower are well understood. To address these issues we have recently
completed a truly unique study of over 1,000 agricultural lending
relationships.
In this study we examine how
interest rate margin, loan
underwriting and servicing costs, write-offs, fee income, and
profitability are
influenced by factors such as loan volume, risk, customer
characteristics,
demographics, and use of non-loan services.
Our results provide some of the only estimates of the magnitude
of the
economies of scale achieved at the borrower level.
Additionally, we have completed work to examine how credit risk transitions or migrates over time.
The results of the studies should
provide lenders with
better information about the exact relationships between loan
characteristics
and costs and returns. Thereby helping lenders improve the efficiency of credit delivery to agriculture
and
improve the cost of credit for agricultural producers.
The research report summarizing the complete
study is available free of charge on our website and for a nominal fee
through
the mail. Additionally, research from
the study is forthcoming in the American
Journal of Agricultural Economics and highlighted in a series of
articles
published in Ag Lender.
Jeff Stokes at Penn State University and I have also completed work that uses publicly available (FDIC) data and maximum entropy techniques to estimate the likelihood that loans become delinquent. Another project seeks to develop better models to capture the likelihood of default. While most current models assume that default arises due to technical insolvency, our approach adds to that probability the more likely situation where default occurs due to liquidity problems.
Stokes, J.R. and B.A. Gloy. “Mortgage Delinquency Migration: An Application of Maximum Entropy Econometrics.” Journal of Real Estate Portfolio Management, 13:2(2007):153-160.
Stokes, J.R. and B.A. Gloy. “Delinquency and Default on Agricultural Mortgages.” Agricultural Finance Review, 67:1(2007):75-85.
E.L. Ladue,
B.A. Gloy, and C. Cuykendall. “The
Profitability of Agricultural Lending Relationships.”
Research Bulletin 1(2005). 94 pages.
Department of Applied Economics and Management,
Cornell
University
.
Gloy,
B.A., M.A.
Gunderson, and E.L. LaDue. “The Costs
and Returns of Agricultural Credit Delivery.”
American
Journal of Agricultural Economics, 87:3(2005):703-716.
Gloy, B.A., E.L. LaDue, and M.A. Gunderson. “Credit Risk Migration and Downgrades Experienced By Agricultural Lenders.” Agricultural Finance Review, 65:1(2005):1-16.
Gustafson, C.R., G. Pederson, and B.A. Gloy. “Credit Risk Assessment.” Agricultural Finance Review, 65:2(2005):201-217.
LaDue, E.L., B.A. Gloy, and C. Cuykendall. “The Profitability of Agricultural Lending Relationships.” Ag Lender, 9:3(March 2005):10-13.
LaDue,
E.L., B.A.
Gloy, and C. Cuykendall. “Personnel
Costs, Fees and Write-Offs: Part 2 in the Profitability of Agricultural
Lending.” Ag Lender,
9:4(April 2005):10-11.
